A Financial Tax May Change the Trading Game

To the dismay of Wall Street and the United States government, much of Europe appears ready to start taxing financial trading as soon as 2014.

The idea is not new; However, until now, financial institutions and markets have been able to keep away this type of tax in major markets. With financiers claiming a tax would increase the cost of capital for businesses and hurt economic growth. They stated that they would send trading to other countries, and not do business with the country that adopted the tax creating fewer jobs and less revenue.

However, these arguments haven’t been proven to be persuasive in Europe, which believes that it has found a way to stop institutions from avoiding the financial tax.

If Europe is right, it could very well turn out to be a determining moment in the relation of large financial institutions to governments.

The financial tax would be a small amount for investors who buy and hold; However, it could prove to be a significant amount for traders placing millions of orders each day.

Under the new financial trading tax proposal, any trading of shares worth 10,000 euros would receive a tax of 10 euros, or one-tenth of 1 percent. A derivative trade would receive a tax of one-hundredth of 1 percent. However, that would be applied to the notional value, which can be considerable relative to the derivative cost. Therefore, a credit-default swap on $1 million euros of debt would be taxed around 0.4 % of the annual premium, or 100 euros. TradeDoubler site verification 2303195

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Posted by Fred Wilder
on Nov 20 2014. Filed under Finance.
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